How Bad Credit Score will Affect Your Education Loan? | Expert Guidance

How Bad Credit Score will Affect Your Education Loan?

How Bad Credit Score will Affect Your Education Loan?

Student loans have almost become a necessity these days owing to the high fee charged by all the good institutes out there. While the process of taking education loans in India is really simple, the government also helps by encouraging people and the banks provide good and reasonable interest rates for these loans. SBI education loan is one such which helps the aspirants to avail quality education. One just needs to submit some important documents and go through some verification process and then the loan is passed based on the results of this verification procedure.

However, there is a big hurdle namely, The Credit Information Bureau India Limited (CIBIL) score which applicants would need to get over. A bad CIBIL score would not let people successfully avail a loan for their education at a good interest rate. Their loan would be sanctioned but the interest rate would be much higher as compared to those with good credit scores. A good credit score, in this case, would be minimum 750 as an average. This would allow applicants to get loans at good interest rates and as per the statistics, almost 80% of the education loans sanctioned by banks are for 750 or above credit score.

How Bad Credit Score will Affect Your Education Loan?

Customers with credit scores above 750 have a higher probability of getting their loans approved quicker. The opposite also holds true for the loan. The good thing about education loan is that the applicant can repay the loan after they complete their education and are employed. Post that, the loan must be timely repaid to keep a good credit score. Any missed or delayed payment will take a strike against your CIBIL score. It is important to maintain a good CIBIL score for people who wish to apply for loans as they stand a chance of getting rejected for loans if their credit score is low.

How Bad Credit Score will Affect Your Education Loan?

What if people have low CIBIL score?

The CIBIL score is not just a measure of the applicant’s creditworthiness but also a measure of their trustworthiness by the bank. It is calculated on the basis of the applicant’s credit history. The range of credit score is somewhere from 1 to 999.  It is difficult to get a loan approved if people have low credit scores. There still are a few options available which the applicants can opt for if they have low CIBIL scores. They can go to Non-banking Financial Companies (NBFCs) for loans. These companies are more accommodating when it comes to the applicant’s credit score.

The interest rates will, however, be comparatively higher than banks. The good side of this is that even with credit scores as low as 360, an individual can get his/her loan approved from some of these NBFCs. Another option is peer-to-peer lending websites. They are collateral free and the interest rate that they charge will be around 12% to 24%. However, the best part of these websites is that they allow the individual to get loans of up to 5 lakhs over a tenure of 3 years, despite their low credit scores.

There is a way around for those individuals who only rely on banks for loans but have a low credit score. They can get the banks to lower the interest rates on their loans with the help of collateral. If the applicant has any form of valid collateral, they can use it get their loans approved at a lower interest rate. However, life insurance policies would not be of much help in this case as the cover for this policies is not big enough for a heavy loan. Loan protector policies are considered by some banks. Another easy option is to apply for a loan against property or gold if the applicant has a low credit score. With this, your chances of getting a lower interest rate on your loan increase.

Applying for loans at large banks

If you wish to apply for an education loan at a large bank, make sure that you do not have a credit score below 650. If you have a credit score below that mark, avoid going to these banks because each of these inquiries also have an impact on your credit score. The banks pull out your CIBIL score information every time you apply for a loan and if it is rejected, you might apply again. The number of these enquiries reflects directly on your credit score. A big number of these enquiries would not have a good outcome on the CIBIL scores. You can always explain your reason for having a low credit score.

If you have a genuine reason for your CIBIL score being low, the financial institution or the lender would consider the reason and would lower the interest rate for the loan. They will only do so if they feel that the reason that you stated for your credit score being low was genuine enough.

NBFCs are also another good option for you in such cases as they are always looking to provide loans to the customers whose loans were not approved by the banks or other financial institutions. Keep all your documents ready and updated when you apply for a loan and also ensure that your credentials are in order. Another aspect which the banks consider when sanctioning loans is your home address. They prefer accepting loan applications in which the current address of the customer has been the same for at least 2 years.

If you have been staying at your current address for 2 years or more, your chances of getting a loan approved at a good interest rate are higher. Check that you apply for a secured loan. Most of the banks would prefer that you have an existing account or relation with them of some sort to allow you for obtaining an unsecured loan. It is possible that some banks might not consider the CIBIL score for an education loan as education loan is generally a secured loan. However, it is better to have a higher credit score to be on the safer side and for ensuring that your loan gets sanctioned.

 

How Bad Credit Score will Affect Your Education Loan?

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